Dow Chemical Studies Master-Limited Partnersip for Plants

Dow Chemical Co., the largest U.S. chemical maker by sales, is considering the creation of a tax-advantaged partnership for two plants it’s building in Texas to boost returns for investors.

The plants in Freeport, Texas, are slated to produce ethylene and propylene, two petrochemicals that are used to make plastics. They could fit into a master-limited partnership structure, partly because the plants haven’t been depreciated, said Howard Ungerleider, Dow’s executive vice president for advanced materials.

“We are actively studying it,” he said today at Goldman Sachs Group Inc.’s Basic Materials Conference in New York. “There are issues to be worked through.”

The partnerships, also known as MLPs, are common in the pipeline industry and have become increasingly popular with investors as the companies generally don’t pay income taxes.

Dow is divesting as much as $6 billion of low-return assets as Dan Loeb, the activist investor who leads Third Point LLC, pressures the Midland, Michigan-based company to improve earnings from commodity chemicals. The jump in Westlake Chemical Corp. shares after its April 29 announcement of a planned ethylene MLP “gives us pause,” Ungerleider said.

Interest rates will probably rise, depressing the value of an MLP structure, he said. Having multiple ventures also increases the complexity of strategic decisions, he said.

Air Products & Chemicals Inc., the world’s largest hydrogen producer, probably won’t pursue an MLP because it wouldn’t add much value for shareholders, Chief Financial Officer Michael Scott Crocco said in a separate session at the conference today.